Customer lifetime value (CLV) refers to an estimate or metric that is used by marketers to calculate the total revenue a business can expect from a single customer throughout the customer journey. It business insight to understand the long-term value of customers and is a key metric used for customer retention strategies.
How is CLV Calculated?
CLV=(AveragePurchaseValue)×(PurchaseFrequency)×(CustomerLifespan)
The value of CLV varies across industries. A higher CLV value indicates a more profitable customer for the business.
What is the Ideal CLV (Customer Lifetime Value )
The ideal CLV value that exceeds the cost of acquiring customers (CAC) ensures the business’s profitability. An ideal ratio of CLV-to-CAC ratio of 3:1 is considered ideal for business.
- Guides marketing budget allocation, provides insight to assist in creating a long-term business strategy.
- Customer Retention: CLV helps businesses focus on long-term customer relationships rather than short-term transactions.
- Marketing Strategy: Helps in making informed decisions about marketing budgets and strategies.
- Profitability: guides investment in acquiring high-value customers, ensuring better returns.
